Robin Hood is a beloved fictional hero, but the Obama-era Justice Department seemed to miss the point of the story. Instead of an outlaw stealing from the rich and giving to the poor, imagine King John taking money from subjects he disliked and giving it to those he liked better.

Not quite ready for Hollywood, but it played in Washington for years.

Normally, when a lawsuit involving the government is settled, you would expect damages to go to the victims of the alleged wrongdoing, the government itself or both. Yet in numerous cases over the past few years, settlements also involved payments to third parties who were not involved in the suit. Most notably, banks that the department targeted in the wake of the 2008 housing crisis paid not only the Treasury, but also community development, legal aid and housing organizations.

The administration defended these settlements as a mechanism for channeling resources directly to communities and groups suffering the worst fallout from the housing crisis. Congressional Republicans and other critics countered that they allowed administration officials to route money to their political allies without going through Congress. The House of Representatives passed a bill to curtail the practice in September 2016, and House Judiciary Committee Chairman Bob Goodlatte, R-Va., introduced a similar bill in January of this year.

“Once direct victims have been compensated, deciding what to do with additional funds recovered from defendants becomes a policy question properly decided by elected representatives in Congress, not agency bureaucrats or prosecutors,” Goodlatte said in a statement.

The money shuffle, however, has now ended without the need for legislation (although a new law is still a good idea to prevent similar abuses in the future). Attorney General Jeff Sessions announced last week that Justice would no longer demand or agree to settlements that involve payments to parties other than the U.S. government or those directly harmed by wrongdoing at issue in the case. In a memo, Sessions reminded his staff and U.S. attorneys across the country that “The goals of any settlement are, first and foremost, to compensate victims, redress harm, or punish and deter unlawful conduct.” Absent a few exceptions noted in Sessions’ memo, these aims do not include redirecting money from an entity the Department happens not to like to another entity of which it, or the administration, approves.

The new policy is not retroactive, though it will likely affect some cases where settlements are currently under negotiation. For instance, a proposed $12 million settlement for Harley Davidson may now need renegotiating, since the tentative agreement included $3 million earmarked for a project to reduce air pollution.

I have written at length about the results of the former administration’s propensity to collect massive fines from banks related to the housing crisis, $110 billion altogether according to some measures. Two of the largest of these settlements – $16.6 billion from Bank of America and $7 billion from Citigroup – included about $150 million each directed to third-party groups, the Los Angeles Times reported. These two settlements served as the focus of much of the criticism of the practice preceding the attorney general’s announcement, including the House Judiciary Committee’s investigation.

The basic fairness of restricting settlement payouts to those who are actually parties to a given lawsuit extends beyond any one industry, however. I wrote in this space about my wholehearted support for punishing Volkswagen to the fullest extent of the law after the discovery that the company had systematically cheated in emissions tests. That support, however, does not mean I necessarily wanted government lawyers to unilaterally decide that VW should spend $2 billion to fund a network of charging stations for electric vehicles. The decision about what to do with $2 billion that would otherwise have gone to the Treasury belonged with congressional appropriators.

The Obama Justice Department treated the private sector, largely, as a piggy bank. That behavior was problem enough when it used settlements to enrich the government itself; using settlements to bypass the need for Congress to approve spending represented a blatant overreach.

In another heartening sign last week, the Supreme Court also placed a check on the pursuit of private sector payouts. In a unanimous ruling, the high court said the Securities and Exchange Commission’s power to demand “disgorgement” – a civil action in which gains received through unethical or illegal means are paid back with interest – is subject to a five-year statute of limitations. In other words, the SEC cannot simply continue investigating forever until it finds something it thinks it can use. Writing for the court, Justice Sonia Sotomayor said statutes of limitations are “vital to the welfare of society.” It is a reminder that has been sorely needed in a system where justice routinely took a backseat to theater and monetary shakedowns.

Disgorgement was a much-used tool at the SEC in recent years. Commission lawyers took in more than $3 billion in disgorgement payments in 2015 alone. Considering that our system of law recognizes statutes of limitations even for violent crimes, the SEC’s insistence on an open-ended ability to impose punishment rightly met with deep skepticism from the justices.

Neither Sessions’ announcement nor the Supreme Court decision alone will stop government prosecutors who remain intent on overreaching. But together, they represent a step back toward the rule of law, as opposed to a brute-force exercise in politically motivated vilification and coercion.

Related Posts

The views expressed in this post are solely those of the author.
We welcome additional perspectives in our comments section as long as they are on topic,
civil in tone and signed with the writer's full name. All comments will be reviewed by our
moderator prior to publication.